Joy Global popular as reverse convertible reference stock; tech names return to reverse convertibles

By Sheri Kasprzak

New York, Oct. 31 - With two offerings on the table this week alone, Joy Global Inc. is becoming a popular reference stock for reverse convertible offerings.

According to one market source whose firm is structuring one of those deals, Joy's stock has been stuck in a rut after dropping substantially earlier this year.

"Joy had at one time been a strong name and a strong stock," said the equity structurer. "They're stuck in a range right now though. They took a hit earlier this year and their stock really hasn't recovered. In fact, it's just kind of sitting there right now. But that makes it good for reverse convertibles. The coupon is still substantial. Investors want these kinds of coupons."

In October, Joy Global's stock traded between $36.40 and $41.91. Throughout September, the stock traded in a similar range, between $32.80 and $46.16.

Moving back to the beginning of the year, the stock had been trading above $70 per share.

On Tuesday, Joy Global's stock gave up $1.09 to settle at $39.11 (Nasdaq: JOYG).

Coupons are 19% to 19.75%

The coupons associated with the two most recent reverse convertibles linked to Joy Global, a mining equipment manufacturer, are substantial.

Bear Stearns Cos. Inc. plan to price 19.75% reverse convertibles linked to the stock with a 70% knock-in price.

Rabo Financial Products BV also has notes set to price linked to Joy. The coupon on those notes is 16%. That deal, which is due to price Nov. 20, matures Nov. 26, 2007 and also carries a 70% knock-in level.

Elsewhere in the equipment-manufacturing sector, Rabo is also set to price 9% reverse convertibles linked to Caterpillar, Inc. through LaSalle Financial Services, Inc. Also, IXIS Securities North America Inc. priced $2.697 million in 8.25% reverse convertibles linked to Caterpillar on Monday for Eksportfinans ASA. Those notes are due Nov. 2, 2007 and carry an 80% knock-in price.

Tech names big for reverse convertibles

In other structured products news, technology stocks regained some popularity as reference shares linked to reverse convertible offerings.

A slate of tech companies were linked to some offerings that priced recently.

Heading up the bunch was SanDisk Corp., which was linked to $1.75 million in 16.75% reverse convertible notes priced by Bear Stearns. Those notes are due Oct. 31, 2007 and carry a 75% knock-in level.

Individual names important

"Volatility within a particular stock would have something to do with it but you're really looking at individual stocks," said one market source when asked why some tech stocks are more popular for reverse convertibles than others.

"You don't want something poised for tremendous gains, but you're not hoping for something that's going to crash and burn tomorrow either."

The market source noted that because a lot of the deals priced now are smaller in size, that could indicate that the offerings are being structured for either just one investor or a small group.

"Most times, you'll have an investor just call and say, 'I'm looking to invest X amount of dollars and I want this coupon'," he said. "Generally, you're not going to get a large number of investors on one deal."

Other tech offers

Among the other technology-related reverse convertibles priced this week was an $800,000 deal linked to Dell, Inc. priced by Bear Stearns. Those 12% notes are due April 30, 2007 and carry an 80% knock-in trigger.

HSBC USA, Inc. priced $800,000 in reverse convertibles linked to Intel Corp. The notes carry a 9% coupon, are due Oct. 31, 2007 and have a 90% knock-in threshold.

ABN Amro Bank NV priced $950,000 in notes linked to Texas Instruments, Inc. Those 9.75% notes have a 90% knock-in.

Coming up, Rabo plans to price 19.5% reverse convertibles linked to Rambus Inc. The notes are set to price Nov. 20 and will be due Nov. 27, 2007.

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